TMI Blog1961 (1) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... tively on the undistributed profits of those years. It will be convenient to set out here the income finally determined by the Income-tax Officer in respect of those years, the undistributed profits determined by the Income-tax Officer and on which rebate was allowed and the rebate that was allowed on that basis. quot;Assessment year Income finally determined by Undistributed profits determined by the I.T.O. Rebate. Rs. Rs. Rs. A. P. 1. 1948-49 3,11,166 1,55,447 9,715 7 0 2. 1949-50 3,80,852 1,68,691 10,543 3 0 3. 1950-51 3,64,893 45,392 2,837 0 0 4. 1951-52 3,70,055 36,892 2,305 12 0 5. 1952-53 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(6A)(c) of the Act. He certified that the total amount of dividends distributed was an aggregate amount of ₹ 1,55,520 out of the reserves formed out of the profits or accumulated profits of the earlier years ending December 31, 1951, December 31, 1952, December 31, 1954, and December 31, 1956. For the purpose of the present petition, we are concerned only with the first two of these years, the amounts in respect of which were ₹ 98,886 and ₹ 22,289. On March 31, 1958, the liquidator distributed a further sum of ₹ 150 per each ordinary share and the total amount of distribution was ₹ 1,15,200. That distribution was also to be treated as dividend under section 2(6A)(c) of the Act. The liquidator issued on income- tax refund certificate to the effect that the total amount of dividends distributed and aggregating to ₹ 1,15,200 was out of the reserves formed out of the profits or accumulated profits of the earlier years ending December 31, 1948, December 31, 1949, December 31, 1950 and December 31, 1951. On this petition, we are concerned with the amounts of accumulated profits of all the four years, which amounts respectively were ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner company has come to this court on this petition under article 226 of the Constitution. It has been argued before us by Mr. D.H. Dwarkadas, learned counsel for the petitioner, that section 35(10) can only apply to the distribution of a dividend by the company itself and the distribution, whether of dividend or otherwise, by a liquidator after a company is taken into liquidation does not fall within the ambit of section 35(10) of the Act. Such a distribution, says Mr. Dwarkadas, cannot be regarded as declaration of dividend by the company. Another contention urged by Mr. Dwarkadas is that section 35(10) is not retrospective in its operation, because it was incorporated in the At from April 1, 1956. Now, this latter contention cannot be availed of by the petitioner in this court. In New Shorrock Spinning and Manufacturing Co. Ltd. v. Income-tax Officer, Special Circle, Ahmedabad [1959] 37 I.T.R. 41 a division bench of the Bombay High Court held that section 35(10) would apply in a case of undistributed profits of previous years. In my judgment in that case I pointed out that section 35(10) was very clear in its scope and application and showed that it dealt with rebate granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned that sub-section (10) was deleted by clause (2) of section 30 of the Finance Act of 1959. In the course of the argument at the bar, reference was made by the learned Advocate-General to sub-sections (8) and (9) of section 35 of the Act. We shall examine this arguments later on in this judgment, but it is not necessary to set out the provisions of sub-sections (8) and (9) in our judgment. It will be seen that the whole argument on behalf of the petitioner turns on the interpretation that may be placed on the first part of sub-section (10) of section 35, and particularly on the meaning and effect of the words and subsequently the amount on which the rebate of income-tax was allowed as aforesaid is availed of by the company, wholly or partly, for declaring dividends in any year. The expression dividend has been defined in section 2(6A) of the Act. The relevant and material part of that definition, and to which our attention has been drawn, is as under: 'dividend' includes: (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or as represents undistributed profits is not income in the hands of the shareholders which they are required to include in their returns of total income for super-tax purposes. In Girdhardas Co. Ltd. v. Commissioner of Income-tax [1957] 31 I.T.R. 82, it was held that current profits which are distributed on liquidation cannot be treated as dividends even under the general law, apart from section 2(6A)(c), because when a company goes into liquidation, the distinction between capital and profits disappears and everything that the liquidator distributes is the assets of the company in liquidation. In Sheth Haridas Achratlal v. Commissioner of Income-tax [1955] 27 I.T.R. 684 also decided by the High Court of Bombay, Chagla C.J. and Tendolkar J. pointed out that in the case of sub-clause (c) to section 2(6A) of the Income-tax Act, the clear intention of the legislature was that only those accumulated profits which had not been capitalised should come within its ambit. There have been changes in the definition of dividend in section 2(6A), to which we shall be referring a little later in our judgment. It will not be necessary for us to go into an inquiry about profits which are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been argued on the other hand by the learned Advocate- General, who appears for the Revenue, that there is nothing in section 35(10), which requires that the definition of dividend in section 2(6A) and particularly that part of it enacted in clause (c) of the same, should be excluded when interpreting the expression dividend in section 35(10). He has drawn our attention to certain changes which were brought about in section 35 and which have bearing on the examination of the contention raised on behalf of the petitioner. Prior to its amendment by the Finance Act, 1955, clause (6A) of section 2 was, in certain respect, differently worded. To sub-clause (c) relating to distribution made to shareholders of a company on the liquidation of the company was appended a proviso. That sub-clause was as under: (c) Any distribution made to the shareholders of a company out of accumulated profits of the company on the liquidation of the company: Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of the liquidation shall be so included. The amendment made in clause (6A) by the Finance Act of 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se (c) of section 2(6A), when we have to read and interpret section 35(10) nor do we find anything in the context which can be said to result in any repugnancy. Counsel for the petitioner company leans heavily on the decision of the Court of Appeal in England in Burrell's case [1924] 9 Tax Cas. 27 (K.B.) and the decisions of the Bombay High Court where the principle laid down in the English case was applied by the court. It is to be noted that sub-clause (c) was incorporated in the definition of dividend in section 2(6A) after Burrell's case was decided. The Court of Appeal in England was not considering any provision similar to that contained in sub-clause (c) of section 2(6A). That sub-clause is enacted in precise language and words. The legislature, it must be presumed, does nothing in vain and does not enact anything which could be regarded as mere surplusage. It is necessary for the court to apply the definition of dividend contained in section 2(6A) in its entirety, when we have to put some meaning and effect on that expression as used in section 35(10), unless of course it would not be repugnant to the subject or context. We have already stated that the result ..... X X X X Extracts X X X X X X X X Extracts X X X X
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